Assignment # 02
Last Date Jul 21, 2014
Seasons Corporation is a listed company which produces cooking oil. Now the company has
an intention to introduce its new product range of “Frozen items” in the market. For this
purpose a new plant is required. This project will require a lot of funds. Company has a plan
to finance it by issuing bonds and stocks in the following manner:
1. Bonds issued to five companies:
Company Book value of
KK Company 1,500,000 6.5
Allied Company 1,000,000 6
N&T Technologies 2,000,000 8
Ziema Company 2,5000,00 7.5
Aazam Textile Company 3,000.000 5
2. Common stock:
65,000 common shares issued at Rs.100 per share. Current market price of common stock is
Rs.102 per share. Divided per common share in current year is Rs.5. Growth rate is 10%.
3. Preferred stock:
100,000 preferred stocks at par value of Rs.35 per share and market value of
preferred stock is Rs.3,500,000. Dividend per preferred share is Rs.3.2.
Income tax rate is 30%.
As a financial manager of the company, you are required to calculate:
1. After-tax cost of debt
2. Cost of equity
3. Cost of preferred stock
4. Weighted Average Cost of Capital (WACC)
SOLUTION GUIDELINES / SPECIAL INSTRUCTIONS:
Please read the following instructions carefully before preparing the assignment solution:
Do prepare the solution after completely reading and understanding the questions.
Put your genuine efforts in order to understand the concepts and calculations thoroughly.
Provide complete calculations for all parts of the questions.
24 hours extra/grace period after the due date is usually available to overcome uploading
difficulties. This extra time should only be used to meet the emergencies and above mentioned due
dates should always be treated as final to avoid any inconvenience.
OTHER IMPORTANT INSTRUCTIONS:
Make sure to upload the solution file before the due date on VULMS.
Any submission made via email after the due date will not be accepted.
Use the font style “Times New Roman”, “Arial” or “Garamond” and font size “12”.
It is advised to compose your document in MS-Word format.
You may also compose your assignment in Open Office format.
Use black and blue font colors only.
RULES FOR MARKING:
Please note that your assignment will not be marked or marked as Zero (0), if:
It is submitted after the due date.
The file you uploaded does not open or is corrupt.
It is in any format other than MS-Word or Open Office; e.g. Excel, PowerPoint, PDF etc.
It is cheated or copied from other students, internet, books, journals etc.
------------------------< BEST OF LUCK >------------------------
Sana .. Are you sure this is right?
file hi opn ni ho rahy pretty angel
in part 1)
After tax cost of debt = interest rate x (1 – tax rate)
what is the value of interest rate???
intrest rate = 33%
1 .Afer – tax cost of debt = 23.1%
2.cost of equity = 14.90
3. Cost of prefferd = 9.14
4. Wacc = 9.0188
if m wrong do correct....
.Afar – tax cost of debt = interest rate * (1 – tax rate)
= 33% * (1- 30%)
= 0.33 * (1-0.3)
= 0.33 * 0.7
mano ap ne 4th wacc kiesy solve kia hain ?
rabia ap ne cost of equity kaise solved kia hae
33% kahan se aya....?
i get 3 answer 4th kasy ho ga
Afar – tax cost of debt = 23.1
Cost of equity = 14.9
Cost of preferred stock = 9.14
wacc kaise nikalna hai
aap cost of equity ghalatt nickal rahe hain na. Dividend nect year ka laina hai current year ka nahi. janb.